JERUSALEM, AUG. 9 -- Israel conducted the first test of a U.S.-financed air defense missile today, and Prime Minister Yitzhak Shamir warned that Iraqi leader Saddam Hussein would "bring heavy disaster on himself" if he tried to attack the Jewish state.

As a small group of U.S. and Israeli officials looked on, the Israeli-made Arrow missile, which reportedly has a range of 42 miles and is designed to fly at 10 times the speed of sound, blasted off from a base in the coastal plain this afternoon and exploded over the Mediterranean. The weapon is designed to knock out intermediate-range missiles before they can reach their targets, and Israeli officials say it eventually will provide a new line of defense against Iraq and other states in the region that have deployed offensive missiles.

The test flight, under preparation for months, was staged one day after Iraq raised the level of tension between Baghdad and Jerusalem. Iraq said Israel had sent planes painted with U.S. markings to Saudia Arabia for use against Iraq and vowed to retaliate for any attack. Israeli officials, who described the Iraqi allegation as thinly-veiled aggression, said they hoped the test would signal to Saddam Hussein that Israel has the technological means to respond to any strike and that it also would reassure an increasingly jittery Israeli public.

Saddam has threatened on several occasions to "burn half of Israel" with chemical weapons if Iraq is attacked, and has deployed medium-range missiles at several sites near Iraq's western border with Jordan, within range of Israeli cities. Jordan is the buffer state between the two countries. Israeli commentators said today that the Iraqi claim about Israeli planes being in Saudi Arabia suggested that if the United States launched air attacks against Iraq, Saddam would respond by striking Israel.

"Saddam Hussein knows that there is always one target which is likely to unite the divided and hostile Arab world -- the Zionist target," said the newspaper Maariv. "Even if Iraq's announcement is primarily psychological warfare, from now on, Israel is involved, really involved. The scenario of a rapid deterioration into war is no longer so distant."

Military sources here have stressed in recent days that according to Israeli intelligence, Iraq has not mounted chemical warheads on its intermediate-range missiles and thus has no credible means of launching a chemical attack against Israel.

Nevertheless, Shamir responded to the new Iraqi threat today with a strongly worded speech to a group of mayors. "Whoever plots to attack Israel must know that Israel has the ability and will to staunchly defend itself," Shamir said. "Whoever wants to harm it is likely to bring heavy disaster on himself."

Israel repeatedly has said in the last week that any move by Iraq to deploy military forces in Jordan would provoke an Israeli strike. Today, some Israeli analysts speculated that Saddam might move a small force into Jordan as a way of testing Israeli resolve and possibly provoking an attack by the Jewish state that would serve to rally the Arab world behind Iraq.

The new Israeli missile tested today, which has been the centerpiece of Israel's participation in the U.S. Strategic Defense Initiative, is not expected to go into production for another five years, officials say. However, Israel sees the 12-yard-long Arrow, which is designed to defend against warheads fired from a range of up to 600 miles, as new proof of its technological prowess.

Despite the pride over the project, the Arrow has become the subject of a quiet controversy within the Israeli military in recent months because of doubts over whether Israel can afford to develop and produce such an expensive weapons system. Overall, the Arrow is expected to cost $800 million or more before it is perfected. Despite heavy U.S. assistance, some Israeli experts worry that the project will drain resources from less spectacular but possibly sounder defense systems.

Apart from the Arrow project, Israel already has developed and tested its own intermediate-range missiles.